Important macro and banking developments in an unusually interesting summer season

Unlike previous years’ summer season, a lot of important macro, political and banking developments are taking place in Greece this year. The government has to identify cost cutting measures of €11.5bn for 2013-14 in an effort to convince international partners that it has the political will and capability to decide and implement the appropriate actions. Ongoing discussions and consultations between political leaders and FinMin as well as those between Greek authorities and troika are continuously testing political and social cohesion retaining a volatile sentiment and fragile outlook. Political leaders’ statements usually address their voters, while FinMin appears more realistic, yet more concerned and cautiously optimistic. As he noted yesterday after meeting the Greek President “there is hope”, but the key concern is whether it will be transformed to positive developments and actions or fade away.

At the same time, the government appears more determined on the privatisation front, although the country’s track record seems rather poor over the past few years. A draft law including 77 administrative and legislative acts to facilitate privatisations, mainly involving the Ministries of Finance, Infrastructure and Energy is due to be submitted to the parliament in the coming weeks. Among others, the government aims to cancel the law that requires the state to retain at least a 51% stake in state-controlled enterprises of strategic importance – paving the way in my view for the privatisation of PPC, water utilities and ports – as well as the law that limits the stake of a single private shareholder to 20%. No timetable or amounts for 2012 and the coming years have been announced, yet I anticipate that developments may come soon, since a potential positive surprise is relatively easier to be achieved in this area and would please international partners ahead of discussions at top-level on renegotiation.

It is noteworthy that troika issued for the second time a statement before the completion of its review (the first was in September ’11 when discussions with Greek authorities were discontinued), which could be perceived as a slightly positive development amid negative newsflow and rumors on the outcome of its review and sustainability analysis. Furthermore, IMF is seen pressuring eurozone governments to take steps to lighten Greece’s bailout loan burden and reduce the country’s debt to sustainable levels. Proposals involve further interest rate cuts on bailout loans, ECB and euro zone central banks to accept a 30% haircut in their GGB holdings estimated at c€50bn, eurozone governments to take haircuts on bilateral loans made to Greece and ESM to take on Greek bank recapitalisation cost of €50bn.

The announced meetings of PM with Eurogroup President in Athens on August 22 and particularly with German Chancellor in Berlin on August 24 and French President in Paris on August 25 would be very critical for the political consultations and decisions (seen in September) at top-level and may provide some comfort – and ideally support – to crucial pending issues. At the same time, these meeting also serve as a deadline for the Greek government to timely decide on the required measures and policies without delaying or postponing all important actions.

On the banking front, the market’s initial focus on bank recapitalisation has temporarily put aside and all eyes are now on consolidation. The sale of the sound part of ATEbank to Piraeus Bank in late July, a positive development both for the government and Piraeus, was probably the first step towards a restructuring of the domestic banking system.

The sale of Emporiki Bank, which suddenly turned out to be the most attractive acquisition target (like the Golden Fleece in the ancient Greek history), with Alpha Bank, Eurobank and National Bank officially expressing their interest would definitely alter Greek banking landscape. Reportedly, offers are due today, while decisions on the bidders are expected by the end of month or in September. Press reports also indicate that Emporiki should be fully recapitalised and funded before it is sold, while Credit Agricole (Emporiki’s dominant shareholder) may hold a minority stake (< 10%) in the new entity. Hellenic Postbank and Geniki Bank are also rumoured to be on sale, potentially ending up merging with a large Greek bank, yet I anticipate that upcoming developments will come at a later stage.

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